Havells Q3 Results Review - Weak; Demand, Margins Likely To Revive From Q4; Systematix Maintains 'Buy'

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Systematix Research Report

Havells India Ltd.'s weak operating result in Q3 (revenue up 11% YoY, Ebitda/PAT down 1%/3% YoY; Ebitda margin down 108 bps YoY at 8.7%) was driven by mixed results across key categories. Revenue growth was led by ECD (up 15%, demand uptick in SDA) and Lloyd (up 13%) segments and restricted by cables (up 7% YoY, wires destocking by channel) and lighting (up 3% YoY, LED price erosion).

Ebitda margin was majorly impacted by switchgear (higher mix of lower margin project sales + plant relocation), ECD (higher mix of SDA), Others (business scale up) and Lloyd (lean season) segments. Infrastructure and industrial demand remains robust. Consumer demand improved a bit during festivals.

Management expects a gradual recovery in demand across segments and is confident of margins normalising in the coming quarters. It plans a Rs 8-10bn annual capex over next two years, majorly on Cables and Refrigerator.

After a weak Q3, we cut our earnings estimates by 1-9% on lower margin expectations. We now expect 16%/22%/24% CAGR in revenue/ Ebitda/PAT over FY24-27E (FY19-24: 13%/9%/10%) driven by healthy results in all the key segments. Robust free cash flow (Rs 10 billion plus annually despite continued large annual capex), 30%+ RoCE and 50%+ RoIC in FY27E will support Havells’ rich valuation. Maintain Buy with a target price of Rs 1,952 (50x FY27E P/E, earlier Rs 1,978).

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